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Fears of imminent recession dampened low CPI cheer.
What you need to know today
- Inflation slowed in March. The consumer price index rose 0.1% for the month, or 5% compared with a year ago. Both figures are 0.1 percentage points below estimates. But core CPI, which excludes food and energy, remained stubbornly high.
- A recession is likely for the U.S. economy later this year in the wake of the banking crisis, according to minutes from the Federal Open Market Committee's March meeting. Fed officials expect banks to reduce lending, which would slow the economy.
- U.S. stocks fell Wednesday on those fears, after rallying earlier in the day on signs inflation is cooling. European markets — which closed before they could react to the Fed's minutes — broadly rose.
- Warren Buffett thinks more banks might fail in the same way SVB did — because they made the wrong bet on asset prices. But depositors, he told CNBC, shouldn't worry because "nobody is going to lose money on a deposit in a U.S. bank."
- Separately, Buffett said he was "confounded" to learn he could buy into Japanese trading houses — conglomerates that import products into Japan — because they have an earnings yield of around 14%. In other words, stock prices of those conglomerates were vastly undervalued relative to their earnings.
- PRO As we head into earnings season, Goldman Sachs picks eight stocks that have the potential to rise — and two that might sink — as companies report first-quarter results.
The bottom line
The Fed didn't give investors much time to celebrate March's lower-than-expected inflation reading.
The CPI should have been the news of the day. It said all the right things. The annual increase in headline inflation was the lowest since June 2021. Food prices dropped 0.3%, the first time they fell since September 2020. Housing costs rose, but at the slowest pace since November last year.
Markets rose after the CPI was released — why wouldn't they?
Then minutes from the FOMC's meeting came out and changed investors' day. Fear of recession replaced optimism around inflation. By the end of the trading session, all indexes registered losses. The S&P 500 fell 0.41%, the Dow Jones Industrial Average snapped its four-day winning streak to lose 0.11%, and the Nasdaq Composite slid 0.85%.
Perhaps investors were too optimistic in the first place. Richmond Fed President Thomas Barkin said we've moved past the eye-watering inflation of last June, but he told CNBC that "we still have a ways to go." That would suggest inflation — and interest rate hikes — aren't done yet.
Echoing Barkin, BlackRock CEO Larry Fink said he doesn't believe we can "get below 4% inflation any time soon, which in my mind will probably lead to more tightening by the Federal Reserve."
Investors will keep their eyes on the producer price index coming out today, and earnings reports from big U.S. banks Friday, to gauge whether the economy is truly in such dire straits.
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